A reading below 50 indicates that activity in the sector is contracting, so at 49.8 it suggests conditions deteriorated at a slightly slower pace than August.

Despite the small improvement, activity levels have now contracted for two consecutive months, something that has not occurred since January and February this year.

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While the headline index recorded a modest improvement, the internals of the report were more robust with output, new orders and supplier delivery times all improving from August.

Output jumped to 52.3 from 51.7, recording the fastest pace of expansion in two months. In a sign that demand may be starting to pick up, the gauge on new orders increased to 50.2 from 49.7, the first time since May that an improvement has been recorded.

Of the other three components, supplier delivery times improved to 50.8 from 50.6 while the employment index, still deep in contractionary territory, held steady at 47.9. Inventories, at 47.5, was the only component to deteriorate at a faster pace, sliding from 48.3 in August.

Released alongside the manufacturing report, non-manufacturing PMI held steady at 53.4 for a second consecutive month.

The report, often lost in the shadows of the manufacturing PMI release, indicates that activity levels continue to expand, albeit at a slower pace than that seen earlier in the year.

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Despite both gauges coming in significantly weaker than levels earlier in the year, they aren't as bad as what many had feared.

Stocks in Australia, along with the Australian dollar, have both responded positively to the news, adding to gains witnessed prior to the report's release. As at 11.25am AEST the ASX 200 is up 0.59% while the AUD/USD has risen to .7031, an increase of 0.19%.